In a rare unanimous vote, the Senate passed a bill offering up to $25,000 in tax deductions for tipped workers. The legislation now moves to the House.

Bipartisan Move Supports Millions in Service Sector

The U.S. Senate on Tuesday passed a bill that would allow workers in traditionally tipped occupations to deduct up to $25,000 in reported cash tips from their taxable income. The legislation, championed by Sen. Ted Cruz of Texas, received unanimous approval—an uncommon outcome for major fiscal policy measures.

If signed into law, the bill would also extend business tax credits for payroll taxes on tipped income in beauty and spa industries. The provision is specifically designed for workers in roles where tipping is customary in the U.S., such as servers, bartenders, hairstylists, barbers, estheticians, and massage therapists.

The bill introduces an income cap: employees earning more than $160,000 in the prior tax year will not qualify for the deduction. Moreover, only cash tips reported to employers and subject to payroll tax withholding would be eligible under the new rule.

Senator Jacky Rosen, a Democrat from Nevada, voiced her support during floor remarks, citing the legislation as a fulfillment of one of President Donald Trump's campaign promises. “I am not afraid to embrace a good idea, wherever it comes from. So I agreed we need to get this done,” Rosen said.

Millions May Benefit, But Fiscal Concerns Remain

According to the Budget Lab at Yale, approximately four million workers were employed in tipped roles in 2023. These workers skew younger than the general labor force, with roughly one-third under the age of 25 and 13% being teenagers. The organization notes that non-tipped workers in 2023 were, on average, about ten years older than their tipped counterparts.

Under current tax law, workers must report tips exceeding $20 per month to their employers, who then include those amounts in payroll tax calculations. The new bill reinforces this framework by tying the deduction to properly reported and taxed tips.

However, the proposal comes with a significant fiscal price tag. The center-right Peter G. Peterson Foundation estimates that the measure would reduce federal revenue by $110 billion over the next decade. Despite the cost, bipartisan support signals strong momentum behind the legislation as part of a broader Republican-led effort to advance a sweeping tax cut and spending package that includes a four-year tax break for service workers.

The bill now heads to the House of Representatives, where its passage would move it one step closer to becoming law. If enacted, it would mark a significant shift in federal tax policy for millions of tipped workers, potentially improving after-tax income for many in the service industry while also raising long-term budgetary questions.